Cera Sanitaryware expects operating profit margins to stabilise at 16%

Riken Mehta
Follow me on Twitter @mehtariken

Ahmedabad-based sanitary ware company Cera Sanitaryware  reported another strong earnings performance in the first quarter of financial year 2013-14. Sales jumped 40 percent year-on-year to Rs 127 crore. Operating profit and net profit were up 27 percent and 20 percent to Rs 20 crore and Rs 11 crore respectively. Operating profit margins were down 152 basis points to 15.7 percent.

Cera Sanitaryware has grown at a healthy compound annual growth rate (CAGR) of 32 to 34 percent in last 5 years. In last 2 years company’s CAGR has been close to 50 percent,” Bharat Mody, strategic advisor at Cera Sanitaryware told in an exclusive interview to moneycontrol.com

Guidance

“We will not give a particular figure for sales and profit guidance but it will be safe to assume 35 to 40 percent growth in sales this year depending on the market conditions. We might even beat that number,” said Mody.

Raw material cost

Sanitaryware: The cost of raw material to total percentage of sales is 13 to 14 percent for sanitaryware. The basic raw material for Sanitaryware is mineral. Even if the cost of excavation and transportation cost goes up going ahead, it will not materially impact the company.

Faucetware: “The cost of raw material to total percentage of sales is 80 percent for faucetware. We lowered our production of faucets in this quarter which led to drop in raw material cost in this quarter compared to Q4FY13,” added Mody.

Revenue break-up

Sanitaryware contributes 60 percent to total revenues followed by 20 percent each from faucetware and bathware products.

Sanitaryware

The sanitaryware plants are operating at 95 to 98 percent capacity utilization. The company is focusing on manufacturing higher value-added products. We are outsourcing lower value-added products where margins are not so lucrative.

Faucetware

“We were struggling for the past two years to gain market share in this segment so we have changed our strategy and working on new high quality products. We will try various prototypes this year and then we may launch new products next year,” he added.

Operating profit margins

“Our margins have come down to 16 percent. We are focusing on generating more revenues even at the expense of contracting margins since this business is about volumes. However, it will be safe to assume that operating margins will remain around 16 percent going forward,” said Mody.

Rupee depreciation

Mody clarified, “Around Rs 75-80 crore product works was imported from China last year and roughly Rs 100-120 crore will be imported this year. Cera will be impacted from rupee depreciation going forward. The company has deployed hedging strategies and also some of the cost has been passed on to the consumers.”

Exports

“Currently, exports contribute 3 to 5 percent to total revenues. We will look to scale up our exports now post rupee depreciation of 10 to 15 percent. Margins have become lucrative in exports and the revenues from exports may go up going forward after rupee depreciation,” said Mody.

Loans

The current outstanding loan book is Rs 15 crore.

Tiles

“Cera wants to place itself as a one-stop shop for the entire bathroom setup. We ventured into tiles to offer a complete range of bathware products along with tiles. We have outsourced tiles business and the company has no plans to get into manufacturing for the next five years,” concluded Mody.

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